Lehman Estate Settles Claims By RMBS Insurer and Trustee


On September 20, 2016, Judge Shelley Chapman of the U.S. Bankruptcy Court for the Southern District of New York approved the $37 million settlement of $1.3 billion in claims asserted against the estates of two defunct Lehman Brothers’ entities by Syncora Guarantee Inc. in its capacity as the insurer for certain certificates issued from the GMFT 2006-1 RMBS trust. After being sued by the GMFT 2006-1 Trustee for payment under the insurance policy, Syncora filed its own claim for indemnification against Lehman as sponsor of the securitization. In addition to settling Syncora’s claim, the agreement also releases Lehman from all potential claims brought by the GMFT 2006-1 Trustee, U.S. Bank NA, in exchange for Lehman’s cooperation in a separate lawsuit arising from GreenPoint Mortgage Funding Inc.’s alleged failure to repurchase defective loans. Settlement Order. Settlement Agreement Submitted For Approval.

SEC Finds that Private Equity Fund Adviser Acted as Unregistered Broker

On June 1, 2016, the Securities and Exchange Commission (“SEC”) announced that a private equity fund advisory firm and its owner agreed to pay more than $3.1 million to settle charges that they engaged in brokerage activity, charged fees without registering as a broker-dealer and committed other securities law violations.

An SEC investigation found that Blackstreet Capital Management, LLC (“Blackstreet”) and its principal performed in-house brokerage services rather than using investment banks or broker-dealers to handle the acquisition and disposition of portfolio companies for a pair of advised private equity funds. Of particular interest is the SEC highlighted that “Blackstreet fully disclosed to its funds and their investors that it would provide brokerage services in exchange for a fee” and that the limited partnership agreements of the advised funds “expressly permitted” the adviser “to charge transaction or brokerage fees.”  However, this did not suffice.

In the press release announcing the Order, Andrew J. Ceresney, Director of the SEC Enforcement Division, emphasized that the rules are clear that “before a firm provides brokerage services and receives compensation in return, it must be properly registered within the regulatory framework that protects investors and informs our markets.”

Of note, the Order did not address whether or not Blackstreet offset transaction fees payable by the advised funds against its management fee. This is significant because in April 2013 the Chief Counsel of the SEC’s Division of Trading and Markets gave a speech in which he stated that “to the extent [a private equity fund] advisory fee is wholly reduced or offset by the amount of [a] transaction fee, one might view the fee as another way to pay the advisory fee, which, in my view, in itself would not appear to raise broker-dealer registration concerns.”  Since the Order does not disclose whether or not there was a fee offset in the case presented, it is unclear whether the current SEC staff holds the view expressed by the Chief Counsel in 2013.


FDIC Settles RMBS Litigation for $190 Million with U.S. Financial Institutions

On May 26, 2016, the FDIC reached a $190 million settlement of RMBS claims against eight financial institutions, including Barclays Capital Inc.; Deutsche Bank Securities Inc.; Goldman, Sachs & Co; RBS Securities Inc.; and UBS Securities LLC. The settlement resolves six separate suits brought in 2011 and 2012 in California and Alabama alleging misrepresentations within the defendant underwriters’ RMBS offering documents.  The FDIC, as a receiver, will distribute the settlement funds among five failed bank receiverships.  FDIC Settlement Agreement.

Goldman Sachs Set to Pay $5.1 Billion in RMBS Settlement

On April 11, Goldman Sachs agreed to pay roughly $5.1 billion in a settlement with federal and state officials regarding the marketing and sale of RMBS during the years leading up to the financial crisis.  The settlement is divided into a $2.4 billion civil penalty, $1.8 billion for consumer relief and $875 million in cash.  Cash payments will primarily be divided among the National Credit Union Administration, the Federal Home Loan Banks and the States of California, Illinois and New York. Goldman Settlement.

New York Federal Judge Approves Wells Fargo $1.2 Billion Settlement with FHA

On April 8, U.S. District Judge Jesse M. Furman approved a $1.2 billion settlement paid by Wells Fargo NA to the Federal Housing Administration (“FHA”) over allegations that Wells Fargo submitted insurance claims for defaulted loans that failed to meet FHA standards.  The Settlement Order states that “Wells Fargo Bank admits, acknowledges, and accepts responsibility” for certain allegations in the FHA’s complaint (October 15, 2012 FIWIR coverage), filed October 9, 2012 in the Southern District of New York. Wells Fargo Settlement Order.

Ambac and J.P. Morgan Reach $995M RMBS Settlement

On Monday, January 25, 2016, monoline insurer Ambac Assurance Corporation (“Ambac”) reached a $995 million settlement with J.P. Morgan, resolving two RMBS actions pending before Justice Ramos in the Supreme Court of the State of New York and Ambac’s objections to J.P. Morgan’s $4.5 billion global settlement with RMBS trustees.  We previously covered Ambac’s actions against J.P. Morgan here, here and here.  In those actions, Ambac brought claims against J.P. Morgan as the successor to EMC Mortgage and Bear Stearns for alleged misrepresentation of the quality the loans underlying eleven RMBS transactions.  The settlement also resolves Ambac’s objections to J.P. Morgan’s 2014 settlement with RMBS trustees of claims for alleged breaches of representations and warranties and servicing deficiencies. The adequacy of that settlement is currently the subject of an Article 77 proceeding before Justice Friedman of the Supreme Court of the State of New York, which we previously covered herePress Release.  Stipulation of Withdrawal.

Independent Foreclosure Review Settlement

On January 7, the OCC and the Fed announced a settlement with 10 mortgage servicing companies which includes cash payments to eligible borrowers and other assistance, such as loan modifications and forgiveness of deficiency judgments.  The settlement relates to mortgage servicers operating under enforcement actions issued in April 2011 by the OCC, the Fed, and the OTS.  Joint Release.

$40 Million Settlement Approved in Lehman Brothers Case

On June 21, 2012, Judge Lewis A. Kaplan of the Southern District of New York approved a $40 million settlement in an RMBS class action brought by Locals 302 and 612 of the International Union of Operating Engineers – Employers Construction Industry Retirement Trust against Lehman Brothers and certain of its former officers and directors. The settlement resolved claims against the officers and directors only. In the same order, Judge Kaplan certified a plaintiff class for settlement purposes only. Order.

New York, Delaware AGs Again Intervene in BofA-Countrywide MBS Settlement Proceeding

On Wednesday, June 6, 2012, Judge Barbara R. Kapnick granted the motions of the Attorneys General of the states of New York and Delaware to intervene in the proceeding to approve the $8.5 billion settlement between Bank of America and investors in certain Countrywide MBS. Both Attorneys General previously had been allowed to intervene in related federal court proceedings. The case was subsequently remanded to state court, where the New York and Delaware AGs again sought to intervene. In granting the motions over the objection of the trustee for the MBS trusts and certain institutional investors, Judge Kapnick found that the Attorneys General had “identified legitimate quasi-sovereign interests at play in this Proceeding,” and that the intervention would not result in undue delay. Order.

Assured Guaranty and Deutsche Bank Settle RMBS Claims for $165.6 Million

On May 10, 2012, Assured Guaranty announced that it had reached a $165.6 million settlement with Deutsche Bank resolving claims related to RMBS transactions issued, underwritten or sponsored by Deutsche Bank that were insured by Assured Guaranty under financial guaranty insurance policies. The settlement also resolved claims related to RMBS exposures in re-securitization transactions on which Assured Guaranty provided credit protection through credit default swaps. The claims resolved by this settlement were not yet in litigation. Press Release.